Fed: The lull before the data storm

AAP General News (Australia)
08-25-2009
Fed: The lull before the data storm

By Colin Brinsden, Economics Correspondent

CANBERRA, Aug 25 AAP - Pencil, calculator, slide-rule, abacus, dartboard at the ready
- or whatever tool you use to calculate your economic growth forecasts.

The next seven days brings a host of statistics to help economists fine-tune their
forecasts for gross domestic product (GDP) for the June quarter.

This will be contained in the national accounts due on Wednesday next week.

It really is the lull before the storm.

Will GDP growth expand on the surprise 0.4 per cent increase posted in the March quarter?

- the number which meant Australia avoided a recession, in a technical sense at least.

Or will there be another small negative - as there was in the December quarter last
year - as the economy skims the recession that has hurt many other countries across the
globe?

In his recent appearance before federal politicians, Reserve Bank Governor Glenn Stevens
was confident that Australia had suffered only a "shallow' recession, and that June quarter
GDP would be a positive.

Commonwealth Bank of Australia chief economist Michael Blythe agrees, and has 0.5 per
cent growth pencilled in for the June quarter.

That lifts the annual rate to a puny 0.6 per cent.

Based on what they know already, economists are leaning towards a positive outcome
with consumer spending providing a large prop for economic activity in the three months
to June as a result of the government's cash handouts.

Although, retail activity waned somewhat in the month of June, spending over the entire
quarter grew by a solid 2.0 per cent over the previous quarter.

However, Nomura Australia chief economist Stephen Roberts isn't convinced retail spending
will get the economy across the line, and is looking for a GDP contraction of 0.4 per
cent in the quarter.

After all, household activity is only part of the GDP equation.

The data flow kicks off on Wednesday with the Australian Bureau of Statistics' `construction
work done' report for the June quarter.

Economists' forecasts centre on a three per cent decline, hardly a positive start.

While the number of home building approvals has been on the rise - aided by an influx
of first home buyers lured by low interest rates and a more generous housing grant - economists
say this will be part of the growth story in coming quarters when the houses are actually
built.

Non-residential construction is expected to be dire, reflecting the sharp downturn
in business investment.

Which brings us to Thursday's private capital expenditure figures for the quarter,
which are expected to be ugly.

Economists forecast a further 5.0 per cent reduction, coming on top of the hefty 8.9
per cent drop in the March quarter.

Although businesses have been taking advantage of the government's temporary depreciation
allowance on capital goods - which saw a major jump in vehicle sales up until June - capital
goods imports slumped in the quarter.

Still, such weakness in imports could mean that exports will again contribute to growth
when next Tuesday's balance of payments are released.

Monday's quarterly company profits data are likely to be weak, although another wildcard
will be inventories - goods on shelves and in warehouses - in the same business indicators
report.

Have companies started rebuilding their stocks with consumer and business sentiment
rebounding strongly, or has recent strong spending just depleted stockpiles further?

There are a lot of numbers to get through.

But will economists be entirely confident that have got there forecasts right next
Tuesday evening?

Nomura's Mr Roberts freely admits his negative growth forecast could be "quickly blown
out of the water" if for example business investment proves less weak than expected.

Even then, it only needs revisions to previous GDP outcomes next Wednesday to knock
forecasts out of kilter.

"Many years of experience has shown that your second last forecast is always the best,"

quipped CBA's Mr Blythe.

"It's the last piece of data that pushes your forecast entirely the wrong direction."

Let the number tinkering begin.

AAP cb/sb/goc/jlw/

KEYWORD: ECONOMY (AAP NEWS ANALYSIS)

2009 AAP Information Services Pty Limited (AAP) or its Licensors.